Africa-focused PE ‘way to go’

Private equity funds in Africa and the developing world are set for increased investment from the Norwegian Investment Fund for Developing Countries (Norfund), which has announced plans to double its portfolio over the next five years.

Norfund managing director Kjell Roland said the institution is anticipating huge growth over this period that will boost its portfolio. This will be largely drawn from reflow and profits from the portfolio, as well as significant annual capital injections.

At the moment, Norfund’s portfolio stands at $1.5 billion, invested through its four investment areas: financial institutions, SME funds, renewable energy, and industrial partnerships.

Mr Roland argued that in the wake of current economic crises, private equity funds and other financial intermediaries in the region are more likely to attract capital from international markets.

“Any investor, especially those investing the pensions of future generations, should look to East Africa for its growth opportunities and financial returns,” he said, adding that industry players need to be ambassadors of private business and growth.

Development finance institutions are currently key sources of capital for private equity funds operating in Africa.

British American Asset Managers managing director Edwin Dande said that by investing in Africa-focused private equity firms, development finance institutions provide long-term capital to attractive and growing sectors of regional economies, which local capital markets, though deepening, cannot make available yet.

“Their involvement also helps with quickening the pace of professionalisation and sharpening of the local private equity skill set,” he added.

Mr Dande argued that the presence of the finance institutions helps highlight the attractiveness of the region to global investors, essentially setting the stage for entry of commercial PE investors to complement them.

Besides investing in Aureos Capital and GroFin Africa Fund, Norfund was involved in the establishment of Nairobi-based Fanisi Venture Fund East Africa.

However, players in the industry have been calling for diversification of the sources of capital by funds operating in the region.

Mr Dande said that given the current austerity measures in some of the finance institutions’ home countries, overseas investments may not be a priority.
“However, this is mitigated by the fact that Africa remains fundamentally an attractive investment destination, and indeed, a recent 2011 survey by Preqin suggests that most development finance institutions see Africa as an attractive and intend to either increase or maintain their allocations,” he added.

In recent days, there have been sustained efforts to tap into local sources such as pension funds, insurance companies and high net worth individuals. This would require a review of regulations to pave way for the unlocking of local capital sources for the industry, to complement investment by development finance institutions.